The markets have been swinging wildly up and down, causing huge spreads everyday. I thought I would take advantage of the volatility and make money on the swings.
I have been watching the price movements of Goldman Sachs Group Inc. (GS) recently. I thought that I could buy before each swing that goes either up or down. I picked Goldman Sachs because they were the leader of investment banking before investment banking was gone, and they were the most conservative in terms of debt, so I thought it would be a good stock to trade.
In the beginning of this year, Goldman Sachs (GS) was around the $200 mark and today, and less than a year later, the stock is now in the sub-$100 area. In September, one of my friends suggested that Goldman Sachs (GS) was in serious trouble and would continue falling. Upon his recommendation I bought GOLDMAN SACHS (GS) OCT 100 PUTS at $6.00. Soon after I bought my puts, the news announced that Warren Buffet’s company Berkshire Hathaway decided to invest $5B in Goldman Sachs (GS). Goldman Sachs (GS) stock price shot up and I ran to the exits and sold my puts at $1.60 per contract. I lost 73% of my investment money.
Then, the major stock market indexes started a free fall. Goldman Sachs (GS) share prices turned around after the recent spike in price. Goldman Sachs (GS) fell below the $90 mark and closed at $88 at the end of the week. I had bought GOLDMAN SACHS GROUP NOV 100 CALLS at $12.00. On the following Monday the market open higher but immediately after the stock market opened, Goldman Sachs (GS) share prices started sinking. I didn’t understand why. I thought Goldman Sachs (GS) was a good investment and with the major indexes opened higher, Goldman Sachs (GS) should also see a higher open. Instead, the opposite happened. Goldman Sachs (GS) fell in the morning and the contracts dropped below my purchase price of $12.00 and eventually dropped to as low as $9.90. I became worried because if Goldman Sachs (GS) stock price could not hold up in a market rally, it would be unlikely to hold up in a market sell-off. There was no point of holding it, and I thought of selling my contracts, but I was determined not to sell the calls at a loss.
Goldman Sachs (GS) stock prices slowly climbed back up. I panicked and sold when GS share prices hit $100 and sold my GOLDMAN SACHS GROUP NOV 100 CALLS at $14.00. I thought it was a good sell, but I was wrong.
Later that afternoon, the market rallied much higher and Goldman Sachs (GS) rebounded. When Goldman Sachs (GS) climbed back to $100, it did not stop there, the stock continued to push higher. The GOLDMAN SACHS GROUP NOV 100 CALLS shot up to a high of $20.00. I was frustrated and I realized that I was flushed out of the market. I sold too early and missed the opportunity to sell higher.
The next day, the Goldman Sachs (GS) shares opened 10 points higher, and the GOLDMAN SACHS GROUP NOV 100 CALLS hit a new high of $30. It was a very difficult day for me because I felt I lost a good opportunity to make money back in my portfolio. I could have made five figure profits and it would have helped me reduce my losses for this year.
When Goldman Sachs (GS) dropped again at the end of October, I thought I was presented with another opportunity to make back the money I had lost. I bought GOLDMAN SACHS GROUP NOV 100 CALLS at $8.00 and sold them at $9.00. In my mind, I thought Goldman Sachs (GS) will soon rebound strongly like it did in the pass. I did not want to miss another opportunity so I thought I would hold on to the contracts until Goldman Sachs (GS) climbs much higher.
On October 30th, I bought GOLDMAN SACHS GROUP NOV 100 CALLS at $6. Goldman Sachs (GS) dropped further. I added to my contracts of GOLDMAN SACHS GROUP NOV 100 CALLS at $4, averaging $5 per contract. On November 5th, the day after the Election, the market dropped like a rock and sank to historic lows. The markets continued to sink on November 6th and Goldman Sachs dropped to the low $80’s. Goldman Sachs (GS) dropped below the $80 mark on Friday, November 7th despite a rebound in the major stock market indexes. GOLDMAN SACHS GROUP NOV 100 CALLS closed at $0.70. From my average price of $5 per call, this would be a paper loss of $4.30 or 86%. The calls are pretty much worthless now.
9/22/2008: Bought Puts of GS Nov 100 at $6.00
9/29/2008: Sold Puts of GS at $1.60
10/10/2008: Bought Calls of GS Nov 100 at $12.00
10/13/2008: Sold Calls of GS Nov 100 at $14.00
10/27/2008: Bought Calls of GS Nov 100 at $8.00
10/29/2008: Sold Calls of GS Nov 100 at $9.00
10/30/2008: Bought Calls of GS Nov 100 at $6.00
11/3/2008: Bought more Calls of GS Nov 100 at $4.00, averaging $5.00 per contract.
These losses are eroding not only my portfolio balance but also my mental strength to trade now. I think I may take some time off from trading in these volatile markets. It is difficult to predict when the next move is up or down for a stock. Also day trading has been very time consuming and costly with all the transaction costs. I think I would do better if I am more conservative in my investments. I may just go back to my value investing strategies – buy low, sit back, and wait for the prices to go up.